{"id":299556,"date":"2025-11-18T18:02:21","date_gmt":"2025-11-18T18:02:21","guid":{"rendered":"https:\/\/www.newsbeep.com\/us\/299556\/"},"modified":"2025-11-18T18:02:21","modified_gmt":"2025-11-18T18:02:21","slug":"calpers-adopts-new-approach-to-assess-risk-and-returns","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us\/299556\/","title":{"rendered":"Calpers adopts new approach to assess risk and returns"},"content":{"rendered":"

Unlock the Editor\u2019s Digest for free<\/p>\n

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.<\/p>\n

California\u2019s state pension fund has adopted a new methodology to analyse asset allocations, performance and risk in a governance overhaul that could have market implications for how it invests its $556bn in assets.<\/p>\n

The changes, using a form of analysis known as \u201ctotal portfolio approach\u201d, will give the California Public Employment Retirement System\u2019s<\/a> investment team broader discretion to adjust allocations across asset classes, and measure returns against a single portfolio benchmark. It will replace the 11 benchmarks it currently uses to assess performance of individual asset classes.<\/p>\n

The overhaul was approved by the board of Calpers at a meeting on Monday. It comes after years of below-average investment results, and brings the pension fund<\/a> closer to global peers that have moved away from rigid asset-class silos. Calpers reported an average annual return of 7.1 per cent in the decade to 2025, below the 7.4 per cent national average, according to the Equable Institute.<\/p>\n

The changes come into effect on July 1. One immediate result will see Calpers raise its target equity allocation to 75 per cent from 72 per cent.<\/p>\n

\u201cThe driving rationale for this is to invest the portfolio as a whole,\u201d said Stephen Gilmore, Calpers\u2019 chief investment officer. \u201cThe overall objectives are to ensure that the system is sustainable and\u2009.\u2009.\u2009.\u2009improves the likelihood that we generate somewhat higher returns and improve the funded ratio.\u201d<\/p>\n

Gilmore said the traditional strategic asset allocation model \u2014 in which funds set fixed long-term weights for each asset class and regularly rebalance back to those targets \u2014 encouraged buying high and selling low, and left teams managing assets in isolation. <\/p>\n

Calpers\u2019 11 existing benchmarks \u2014 ranging from private equity to fixed income \u2014 illustrate the problem, Gilmore noted. \u201cIt becomes quite hard to see just how the overall portfolios perform,\u201d he said. By contrast, the new strategy introduces a single reference portfolio, made up of global equities and US Treasuries, which he said would \u201cmake it much simpler\u201d to judge performance and risk.<\/p>\n

The new framework limits active risk within 400 basis points \u2014 how much the fund\u2019s performance is allowed to diverge from the 75:25 reference portfolio. The board also voted to keep the plan\u2019s discount rate unchanged at 6.8 per cent.<\/p>\n

Gilmore acknowledged that raising equity exposure to 75 per cent \u201cadds a little bit more risk\u201d, but argued this was justified over a long horizon. \u201cIt\u2019s always very hard to time the market in terms of adding risk.\u201d<\/p>\n

The new 400bp guardrail replaces a maze of asset-class rules with one overall cap on how much the portfolio can differ from its reference mix. In reality, staff were expected to stay below that cap \u2014 within 250bp-350bp \u2014 rather than pushing up against the full limit, Gilmore said.<\/p>\n

Recommended<\/p>\n

\"Calpers<\/a><\/p>\n

With the adoption of the reference portfolio, he said: \u201cThe board and the public can see whether the management team has done a good job of actually beating the reference portfolio.\u201d<\/p>\n

Frank Ruffino, a Calpers board member, urged the fund to build in an early appraisal, proposing a \u201cformal review of the efficacy of the total portfolio approach compared to the prior strategic asset allocation governance model\u201d within two years of the transition.<\/p>\n

Such a review, he said, would give the board \u201ca clear and transparent evaluation of whether the shift to TPA improves outcomes\u201d.<\/p>\n","protected":false},"excerpt":{"rendered":"Unlock the Editor\u2019s Digest for free Roula Khalaf, Editor of the FT, selects her favourite stories in this…\n","protected":false},"author":2,"featured_media":299557,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[39],"tags":[28,147,530],"class_list":{"0":"post-299556","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-personal-finance","10":"tag-personalfinance"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/299556","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=299556"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/299556\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/299557"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=299556"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=299556"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=299556"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}